GM, Flex Fuel and the Road to Energy Independence

Why push FFVs and E85? GM has several strategic reasons. First and foremost, the company has been under tremendous pressure from environmental groups and others to improve the fuel-efficiency of its vehicles.

Published: 09-Jan-2006

Last week, at the 2006 L.A. Auto Show, General Motors took a small but important step toward the goal of fuel diversification and energy independence. It wasn't the debut of a slick concept car or a hybrid or fuel-cell-powered vehicle -- the grist of most modern auto shows. Rather, it was an initiative to provide new fueling opportunities for the millions of vehicles already on the road that can run seamlessly on either conventional gasoline or plant-based ethanol.

These so-called flex-fuel vehicles, or FFVs, represent a largely ignored solution to reducing America's oil dependency, and GM has made them a cornerstone of its environmental strategy. (Full disclosure: GreenOrder, the consultancy with which I am affiliated, has provided strategic counsel to GM on its FFV initiatives.) In its most recent announcement, GM said it would lead a joint demonstration project along with the state of California, Chevron Technology Ventures, and Pacific Ethanol "to learn more about consumer awareness and acceptance of E85 as a motor vehicle fuel by demonstrating its use in GM's flexible-fuel vehicles."

GM currently has 1.5 million vehicles on U.S. roads capable of using a blend of gasoline that contains up to 85% ethanol (referred to as E85), which is mostly derived from corn. (Its principal U.S. competitor, Ford, also has a significant number of FFVs on the road.) E85 vehicles can run on either conventional gas or E85 without any additional modifications, aftermarket conversions, or cumbersome switches for vehicle users. The cars automatically sense the current fuel mix and adjust accordingly.

Why push FFVs and E85? GM has several strategic reasons. First and foremost, the company has been under tremendous pressure from environmental groups and others to improve the fuel-efficiency of its vehicles. GM has been slow to market with hybrids, having invested untold millions in next-gen hydrogen fuel cell technology. GM views that strategy as forward-thinking, though many of its critics see it as a dodge to avoid improving the fuel efficiency of its current crop of cars and trucks.

So, FFVs offer a way for GM to demonstrate its environmental leadership and generate sales -- and to help jump-start a much-needed flexible-fuel infrastructure along the way.

Just as with hydrogen-powered vehicles, simply putting FFVs on the road isn't enough. You've got to have in place the filling stations that allow motorists to fuel up on E85 and other alternative fuels. And you've got to have an adequate and cost-competitive supply of the fuels themselves. Therein lies the chicken-and-egg dilemma that's led some researchers to predict that a robust hydrogen infrastructure -- and, thus, a robust fuel-cell vehicle marketplace -- could be as much as two decades off.

But that's not the case with E85, which is available today, at least in a few outlets. The number of E85 stations in the U.S. doubled last year to about 600 and is expected to continue to grow as the new Energy Security Act of 2005 is implemented. That law provides a lucrative federal tax credit to stations that install E85 fueling tanks. But even a tenfold increase in ethanol availability would be a drop in the bucket compared to the nation's 176,000 gas stations.

GM's recent announcement is designed to help grow that infrastructure. Under its partnership, GM flex-fuel vehicles will be used by the California Department of Transportation (CalTrans) at various operations in the state. Chevron Technology Ventures will work with CalTrans to provide E85 fuel and install the necessary refueling pumps in these locations. Pacific Ethanol, a California-based ethanol production and marketing company, will provide the ethanol to Chevron Technology Ventures for the project. All told, it's the kind of systemic, cooperative approach we need to see more of.

Brazil already has shown that an ethanol infrastructure is both possible and profitable. Today, half of all new cars sold there are FFVs, and that will rise to 100% within four years. Brazil's reliance on oil imports has plummeted from 85 percent of its energy consumption in 1978 to nearly zero, Brazilian officials say. Brazil’s sugar and ethanol factories not only produce fuel for cars, they generate their own thermal and electric energy using bagasse (the residue of sugar cane crushing) as a fuel in co-generation systems, selling excess electricity to the public grid. Largely as a result of such savvy infrastructure investments, the country is becoming a net exporter of ethanol made from sugar cane, and is "scrambling to invest in port infrastructure to keep ahead of expected growth in world demand for the biofuel," according to Reuters.

Beyond that is the issue of corn, the source of nearly all ethanol in the U.S. Modern corn farming is energy and chemical intensive. Early ethanol plants were also energy intensive, raising concerns as to whether the transportation fuel being produced was worth the energy going into making it. Ethanol production currently consumes about 11% of the total U.S. corn crop.

The most official study of the issue, which also reviews other studies, concludes that the "net energy balance" of making fuel ethanol from corn grain is 1.34; that is, for every unit of energy that goes into growing corn and turning it into ethanol, we get back about one-third more energy as automotive fuel. That may not sound impressive, but bear in mind that while the gasoline that ethanol displaces is largely imported and a high-level pollution source, the mix of energy inputs for producing bioethanol includes much domestic and relatively cleaner energy.

Still, there are better, more energy- and environmentally friendly ways to make ethanol. Energy Department studies show that producing ethanol from some types of plants or crop waste -- known as "cellulosic ethanol" -- instead of from corn or other crops has an impressive net energy ratio of more than 5:1. It's at that level that E85 becomes a true environmentally friendly fuel. Researchers are making strides in bringing affordable cellulosic ethanol to market.

There's clearly an E85-powered bandwagon taking shape. In his state-of-the-state address last week, New York Gov. George Pataki promoted a plan to "provide for the establishment of refineries that make ethanol out of agricultural products from our farms and wood products from our northern forests" and to make such fuel "tax-free throughout the entire state."

But one step at a time. For now, GM seems to be moving the needle on flexible fuels, slowly but surely helping to grow the amount of non-petroleum, American-grown energy we put in our tanks. FFVs aren't a substitute for highly efficient vehicles, of course, but they represent an important strategy for GM to burnish its environmental credentials and build markets for greener vehicles -- and to create benefits for American farmers and drivers, too.

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